OLIGOPOLYoligopolyA form of industry (market) structure characterized by a few dominant firms. Products may be homogenous ordifferentiated. The behavior of any one firm in an oligopoly depends to a great extent on the behavior of others.

OLIGOPOLYOLIGOPOLY MODELSThe behavior of any given oligopolistic firm depends on the behavior of the other firms in the industry comprising the oligopoly.Because many different types of oligopolies exist, a number of different oligopoly modelshave been developed.All kinds of oligopoly have one thing in common:

OLIGOPOLYThe Collusion Model of OligopolyThe colluding oligopoly will face market demand and produce only up to the point at which marginal revenue and marginal cost are equal (MR = MC), and price will be set above marginal cost.cartelA group of firms that gets together and makes joint price and output decisions to maximize joint profits. Basically, the oligopolists band together to act as one big monopolist.tacit collusionCollusion occurs when price- and quantity-fixing agreements among producers are explicit. Tacit collusion occurs when such agreements are implicit.collusion The act of working with other producers in an effort to limit competition and increase joint profits.

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CollusionThese firms get together and agree/conspire to act as a single seller. They act like a monopoly. The cartel seeks to find where MC=MR for the entire market. It then sets a market price for the industry equal to the monopoly price. The cartel restricts output to Qm. Because market output is restricted, each firm’s output must be restricted as well. The cartel, therefore, sets production quotas for each individual firm. Each firm cannot produce more than qm, nor is it allowed (neither is it rational) to sell below the price Pm.

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